GOVERNANCE, RISK MANAGEMENT, COMPLIANCES AND ETHICS

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STUDY MATERIALPROFESSIONAL PROGRAMMEGOVERNANCE, RISKMANAGEMENT,COMPLIANCES AND ETHICSMODULE IPAPER 1i

THE INSTITUTE OF COMPANY SECRETARIES OF INDIATIMING OF HEADQUARTERSMonday to FridayOffice Timings – 9.00 A.M. to 5.30 P.M.Public Dealing TimingsWithout financial transactions – 9.30 A.M. to 5.00 P.M.With financial transactions – 9.30 A.M. to 4.00 P.M.Phones011-41504444, fo@icsi.eduLaser Typesetting by AArushi Graphics, Prashant Vihar, New Delhi, andPrinted at SAP Printers/September 2020ii

PROFESSIONAL PROGRAMMEGOVERNANCE, RISK MANAGEMENT, COMPLIANCESAND ETHICSCorporate governance offers a comprehensive, interdisciplinary approach to the management and control ofcompanies. Corporate professionals of today and tomorrow must imbibe in themselves the evolving principlesof good corporate governance across the globe on a continual basis. Therefore Corporate Governance hasemerged as an important academic discipline in its own right, bringing together contributions from accounting,finance, law and management. Excellence can be bettered only through continuous study, research andacademic and professional interaction of the highest quality in the theory and practice of good corporategovernance. The corporate world especially looks upon Company Secretaries to provide the impetus, guidanceand direction for achieving world-class corporate governance. Company Secretaries are the primary source ofadvice on the conduct of business. This can take into its fold everything from legal advice on conflicts of interest,through accounting advice, to the development of strategy/corporate compliance and advice on sustainabilityaspects.The paper on Governance, Risk Management, Compliances and Ethics has been introduced to provideknowledge on global development on governance, risk management, compliances, ethics and sustainabilityaspects and best governance practices followed worldwide.This Paper is divided into four parts: Part I deals with Governance, Part II deals with Risk Management, Part IIIdeals with Compliances and Part IV deals with Ethics & Sustainability.Part I elaborates on the conceptual and legal framework of Corporate Governance and the role of Board ofDirectors, promoters and stakeholders. Part II explains about the Risk identification, its management, mitigationand audit. Part III explains the significance of Compliance and essentials of a compliance management program.This part also details about the Internal Control and Reporting. Part IV details about the relation of Ethics andbusiness. This part also explains about Sustainability and approaches to measure Business Sustainability.The legislative changes made up to June, 2020 have been incorporated in the study material. The studentsto be conversant with the amendments to the laws made upto six months preceding the date of examination.It may happen that some developments might have taken place during the printing of the study material andits supply to the students. The students are therefore advised to refer to the updations at the Regulator’swebsite, Supplement relevant for the subject issued by ICSI and ICSI Journal Chartered Secretary and otherpublications for updation of study material.In the event of any doubt, students may write to the Directorate of Academics of the Institute for clarification atacademics@icsi.edu.Although due care has been taken in publishing this study material, the possibility of errors, omissions and/ordiscrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall notbe responsible for any errors, omissions and/or discrepancies or any action taken in that behalf.Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged ifthe same is brought to its notice for issue of corrigendum in the e-bulletin ‘Student Company Secretary’.iii

PROFESSIONAL PROGRAMMEGOVERNANCE, RISK MANAGEMENT, COMPLIANCESAND ETHICSThis study material is divided into four parts with following weightage of marks:Part I – Governance (50 marks)Part II - Risk Management (20 marks)Part III - Compliances (20 marks)Part IV - Ethics & Sustainability (10 marks)PART I – GOVERNANCECorporate Governance has a broad scope. It includes both social and institutional aspects. CorporateGovernance encourages a trustworthy, moral, as well as ethical environment. In other words, the heart ofcorporate governance is transparency, disclosure, accountability and integrity. In the last decade, manyemerging markets, international bodies, governments, financial institutions, public and private sector bodieshave reformed their corporate governance systems and are encouraging debate and spearheading initiativestowards good corporate governance. Better regulatory and self-regulatory corporate governance frameworksand enforcement mechanisms are being implemented through tougher legislations and Corporate GovernanceCodes.This part of the study apprise about the developments across jurisdictions and brief about the historic origin,need and importance of corporate governance, legislative framework of Corporate Governance explaining theneed, scope and evolution of Corporate Governance, Contemporary Developments in Corporate GovernanceCorporate Governance codes in major jurisdictions, Corporate Governance in Indian Ethos and familyenterprises. This part further explains the Board effectiveness, its committees, performance evaluation of Boardand role of Promoters.PART II - RISK MANAGEMENTRisk is inherent in every business, whether it is of financial nature or non-financial nature. Thus, managementof the risk is very important. Risk management begins with the risk identification, analyzing the risk factors,making assessment of the risk and mitigation of the risk. Better risk management techniques provide earlywarning signals so that the same may addressed in time. In traditional concept the natural calamities like fire,earthquake, flood, etc were only treated as risk and keeping the safe guard equipments etc were assumed tohave mitigated the risk. But now in the era of fast changing global economy, the management of various typesof risks has gained utmost importance.This part of the study explains the concepts, process, its advantages and steps for implementation of riskmanagement. It also deals with the fraud and reputation risk management and how the negative reputation ofan entity may have adverse impact on the operations and profitability.PART III - COMPLIANCESCompliance means the complete alliance of various parts of the business – whether commercial, financial, orregulatory. It necessitates following the rules, both external and internal. Compliance with law and regulationmust be managed as an integral part of any corporate strategy. The board of directors and management mustiv

recognize the scope and implications of laws and regulations that apply to the company. They must establish acompliance management system as a supporting system of risk management system as it reduces compliancerisk to a great extent. Compliance with the requirements of law through a compliance management programmecan produce positive results at several levels.This part of study explains the adequacy and effectiveness of the compliance system, internal compliancereporting mechanism and ensuring the best practices available for the good governance principles forcompliance issues. It further details about the concept of internal control, elements of internal control and itsefficacy, concept of Reporting which includes the financial as well as non-financial reporting.PART IV - ETHICS & SUSTAINABILITYBusiness Ethics is the application of ethical principles and methods of analysis to business. In past few decadesbusiness ethics has been given due importance in business, commerce and industry. Promotion of culture ofethics is an imperative, and it is increasingly being realized that it is the bedrock of good governance whichultimately re-instills the confidence of the stakeholder in the company.Sustainable development is a broad concept that balances the need for economic growth with environmentalprotection and social equity. Sustainability is based on a simple principle: Everything that we need for oursurvival and well-being depends, either directly or indirectly, on our natural environment. Sustainability createsand maintains the conditions under which humans and nature can exist in productive harmony that permitsfulfilling the social, economic and other requirements of the present and future generations.This part of the study elaborates the concept and advantages of business ethics and also explains aboutcorporate sustainability and sustainable development.v

PROFESSIONAL PROGRAMMEMODULE 1PAPER 1GOVERNANCE, RISK MANAGEMENT, COMPLIANCESAND ETHICS(100 MARKS)SYLLABUSObjectivePart-I:To develop skills of high order so as to provide thorough knowledge and insight into the corporategovernance framework, best governance practices.Part–II:To develop skills of high order so as to provide thorough knowledge and insight into the spectrumof risks faced by businesses.Part-III:To develop the ability to devise and implement adequate and effective systems to ensurecompliance of all applicable laws.Part-IV:To acquire knowledge of ethics in business and framework for corporate sustainability reporting.Detailed ContentsPart I: Governance (50 Marks)1.Conceptual Framework of Corporate Governance: Introduction, Need and Scope, Evolution ofCorporate Governance, Management vs. Ownership, Majority vs Minority, Corporate Governancecodes in major jurisdictions, Sarbanes Oxley Act, US Securities and Exchange Commission; OECDPrinciples of Corporate Governance; Developments in India, Corporate Governance in Indian Ethos,Corporate Governance – Contemporary Developments.2.Legislative Framework of Corporate Governance in India: Listed Companies, Unlisted Companies,PSUs, Banks and Insurance Companies.3.Board Effectiveness: Composition and Structure, Duties and Liabilities, Evolution of Jurisprudence,Diversity in Board Room, Women Director, Nominee Directors; Selection and Appointment Process,Independent Directors: expectations, liabilities and their role, code of conduct, responsibilities andeffectiveness.4.Board Processes through Secretarial Standards.5.Board Committees: Composition & Terms of Reference, Roles and Responsibilities.6.Corporate Policies & Disclosures: Various policies and disclosures to be made as per regulatoryrequirements / voluntarily made as part of good governance.7.Directors’ Training, Development and familiarisation.vi

8.Performance Evaluation of Board and Management: Evaluation of the performance of the Board asa whole, individual director (including independent directors and Chairperson), various Committees ofthe Board and of the management.9.Role of promoter/controlling shareholder, redressal against Oppression and Mismanagement.10.Monitoring of group entities and subsidiaries.11.Accounting and Audit related issues.12.Related Party Transactions.13.Vigil Mechanism/Whistle blower.14.Corporate Governance and Shareholders’ Rights.15.Corporate Governance and other Stakeholders: Employees, Customers, Lenders, Vendors,Government and Regulators, Society, etc.16.Governance and Compliance Risk: Governance/Compliance failure and their impact on business,reputation and fund raising.17.Corporate Governance Forums.18.Parameters of Better Governed Companies: ICSI National Award for Excellence in CorporateGovernance.19.Dealing with Investor Associations, Proxy Services Firms and Institutional Investors.20.Family Enterprise and Corporate Governance.Case Laws, Case Studies & Practical Aspects.Part II: Risk Management (20 Marks)21.Risk Identification, Mitigation and Audit: Risk Identification, Risk Analysis, Risk Measurement, RiskMitigation, Risk Elimination, Risk Management Committee, Clarification and Investigation, Role ofInternal Audit, Risk Audit, Risk Related Disclosures.Case Studies & Practical Aspects.Part III: Compliances (20 Marks)22.Compliance Management: Essentials of successful compliance program, Significance ofCompliance, devising proper systems to ensure compliance, ensuring adequacy and effectivenessof compliance system, internal compliance reporting mechanisms, use of technology for compliancemanagement.23.Internal Control: Nature, Scope and Elements, Techniques of Internal Control System, Steps forInternal Control, Efficacy of internal controls and its review.24.Reporting: Integrated Reporting, Non-financial Reporting, Corporate Sustainability Reporting, BoardReporting, Annual Report, Other Reports under LODR, PIT, SAST Regulations.25.Website Management: Meeting through Video Conferencing.Case Studies & Practical Aspectsvii

Part IV: Ethics & Sustainability (10 Marks)26.Ethics & Business: Ethics, Business Ethics, Organization Structure and Ethics, Addressing EthicalDilemmas, Code of Ethics, Indian Ethos, Designing Code of Conduct, Policies, Fair practices andframeworks.27.Sustainability: Corporate Social Responsibility, Corporate Sustainability Reporting Framework, LegalFramework, Conventions, Treaties on Environmental and Social Aspects, Triple Bottom Line, Principleof Absolute Liability - Case Studies, Contemporary Developments, Indian Ethos.28.Models / Approaches to measure Business Sustainability: Altman Z-Score Model, Risk AdjustedReturn on Capital, Economic Value Added (EVA), Market Value Added (MVA), Sustainable Value AddedApproach.29.Indian and contemporary Laws relating to Anti-bribery: Prevention of corruption Act,1988, CentralVigilance Commission Act, 2003, Lokpal & Lokayukta Act, 2013, Foreign Corrupt Practices Act, 1977,Unlawful Activities (Prevention) Act, 1967 & Delhi Special Police Establishment Act, 1946; ICSI AntiBribery Code.Case Studies & Practical Aspectsviii

ARRANGEMENT OF STUDY LESSONSMODULE 1 – PAPER 1GOVERNANCE, RISK MANAGEMENT, COMPLIANCES AND ETHICSPAR

Corporate Governance, Management vs. Ownership, Majority vs Minority, Corporate Governance codes in major jurisdictions, Sarbanes Oxley Act, US Securities and Exchange Commission; OECD Principles of Corporate Governance; Developments in India, Corporate Governance in Indian Ethos, Corporate Governance – Contemporary Developments. 2.

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